Two More Reasons a Monetary Crisis is Inevitable and Gold is Going to the Moon

Even a casual observer can see that the Fed is now caught between a rock and
a hard place. If it lowers interest rates to head off the economic devastation
that would come with a collapsed housing bubble -- housing is estimated to
have, directly and indirectly, contributed 57% of U.S. economic activity over
the past 5 years -- the Fed risks triggering a wholesale rush by foreigners
to dump their trillions of U.S. dollars. But if it raises interest rates to
protect the dollar, the Fed risks turning an economic downturn into the most
serious recession since the 1930's.

It is our view at Casey
Research that, for a number of reasons, not the least being that we are
soon to enter the presidential election cycle, the government will take the
course of inflation.

A couple of other factors lead us to that view. One is demographic.

The first-born baby boomers are turning 60 this year, and they and their little
brothers and sisters will soon have their hands out for the Social Security
and Medicare entitlements they've been promised. But the boomers represent
an extraordinary bulge in the age profile of the U.S. population. The bulge
means that the share of the population receiving government retirement benefits
will grow, while the share of the population paying for them will shrink. To
paper over this gross imbalance and still keep the entitlement checks going
out, deficits will have to increase at a stupendous rate -- and the engine
of monetary creation will have to ramp up to entirely new and increasingly
dangerous levels.

The second factor promising more inflation is the "Forever War" against Islam
-- already being called World War Three in many quarters. As the chart by our
own Bud Conrad shows, the dollar has been a casualty of every U.S. war. War
costs are paid for with deficits, and the deficits translate into rising price
inflation every time.

Contrary to Wall Street's opinion, these aren't problems the Fed can sweep
under the rug. Fed Chairman Bernanke is an academic with a reasonable understanding
of the technical details, but his career bias has been to dodge recessions
by cranking up the presses that print all those $100 bills. "Helicopter Ben" is
the nickname he earned for facetiously proposing to drop cash out of helicopters
to stave off a deflation.

Given the options in front of him, and his bias toward monetary expansion,
we are convinced that the Fed will return to loose monetary policies -- masked
by ongoing tampering with the CPI indicators and by obfuscating the truth about
the money supply. That's the path of least resistance. In the short run, no
one gets hurt, and it delivers the U.S. government its daily fix of billions
needed to keep the ship of state afloat.

Monetary expansion will buy some time, but then the real trouble starts. A
loose monetary policy eventually produces price inflation. As the inflation
becomes noticed, foreign holders will lose confidence in the dollar. Then,
as they head for the exit, the Fed will face a stark decision: either raise
interest rates to economy-crushing levels to save the dollar, or let the dollar
collapse and tolerate even worse inflation a little further down the line.

There's room in the Fed's lifeboat for the dollar, and there's room for the
economy, but there isn't room for both. Bernanke has already all but announced
that it will be the dollar that gets thrown overboard.

While no one can say how long it will take for a monetary crisis to emerge
or what will ultimately trigger it, now is the time to acknowledge the risk
-- and in fact the likelihood -- that it will occur in the next few years.
That potential is confirmed with each newsflash telling us that the housing
slump is accelerating and that signs of recession are appearing. Those are
code words for the Fed to begin pumping more paper money into the system.

Don't put off preparing for what's coming. Start by salting away some physical
gold and silver for wealth preservation -- precious metals being the only real
form of money worth considering today. Then, for sheer profit potential, assemble
a diversified collection of high-quality gold mining stocks such as we follow
in the Casey
Gold Stock Companion. We go for stocks that should out-perform gold bullion
by a wide margin, to put the most profit into your pocket.

Doug Casey is a highly respected author, publisher and professional investor
who graduated from Georgetown University in 1968.

Doug literally wrote the book on profiting from periods of economic turmoil:
his book Crisis Investing spent multiple weeks as #1 on the New York Times
bestseller list and became the best-selling financial book of 1980 with 438,640
copies sold; surpassing big-caliber names, like Free to Choose by Milton Friedman,
The Real War by Richard Nixon, and Cosmos by Carl Sagan.

Then Doug broke the record with his next book, Strategic Investing, by receiving
the largest advance ever paid for a financial book at the time. Interestingly
enough, Doug's book The International Man was the most sold book in the history
of Rhodesia.

He has been a featured guest on hundreds of radio and TV shows, including
David Letterman, Merv Griffin, Charlie Rose, Phil Donahue, Regis Philbin, Maury
Povich, NBC News and CNN; and has been the topic of numerous features in periodicals
such as Time, Forbes, People, and the Washington Post.

Doug, who divides his time between homes in Aspen, Colorado; Auckland, New
Zealand; and Salta, Argentina, has written newsletters and alert services for
sophisticated investors for over 28 years. Doug has lived in 10 countries and
visited over 175.

In addition to having served as a trustee on the Board of Governors of Washington
College and Northwoods University, Doug has been a director and advisor to
nine different financial corporations.

Doug is widely respected as one of the preeminent authorities on "rational
speculation," especially in the high-potential natural resource sector.

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